It’s come to my attention that more and more investors are seeking out shares in the consumer staples sector to add to their portfolios. I can guess the reason too: as our S&P/ASX 200 (INDEXASX: XJO) prints record highs, investors are probably starting to get nervous that we might be coming to the end of the current market cycle. In other words, a downturn is coming.
Now I think it’s worth pointing out that trying to time the market in any financial way is a recipe for disaster for 99% of investors out there.
But there are a lot of things to like about consumer staples stocks regardless. Having durable earnings bases that don’t respond to changing economic conditions can be a blessing for your portfolio – and especially for your dividend cheques. And when a stock market crash eventually does come, investors often flock to the ‘safety’ of consumer staples companies.
What are the major consumer staples stocks on the ASX?
Well, in order of market capitalisation, we have Woolworths Group Ltd (ASX: WOW), Coles Group Ltd (ASX: COL), A2 Milk Company Ltd (ASX: A2M), Coca-Cola Amatil Ltd (ASX: CCL), Treasury Wine Estates Ltd (ASX: TWE) and Metcash Limited (ASX: MTS).
There are a few others, but that’s your ‘top six’.
Of these six, three are supermarket/grocery chains. Coles and Woolies are obvious, but Metcash also counts as it owns the IGA network of supermarkets (as well as hardware chain Mitre 10 and a network of bottle shops and smaller grocers).
Then we have Treasury Wine and A2 Milk – who sell ‘staples’ but mostly on the premium end of their markets. These two companies have a bit more ‘growth’ in them as they are both heavily investing in expanding their export business, particularly across Asia.
I think these two companies qualify less as consumer staples for this reason – as I’m sure Treasury’s sales of Penfolds Grange will probably take a dip if a recession hits. Ditto with A2’s premium milk products.
Then, rounding out we have good old Coca-Cola. This company needs no real introduction with its world-famous Coke, Fanta and Sprite brands. But Amatil also sells a huge range of other drinks such as Powerade, Vitamin Water, Barista Bros. Iced Coffee, and Mount Franklin bottled water.
Here we have much more of a ‘typical’ consumer staples company. Amatil is likely to be affected far less by a recession or stock market crash as investors know that cheap drinks are not going to be the first thing to go under a typical family’s tightening budget.
Although there are a lot of things to like about ASX consumer staples companies, the average price tag is not currently one of them in my opinion. If you’re set on this sector for your 2020 investing, then my only advice is to keep the fundamentals in mind when looking at these companies!
If you're after top notch dividend income, you won't want to miss this report below!
When Edward Vesely -- The Motley Fool Australia's resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 126%) and Collins Food (up 79%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.
In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.
Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.